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Choosing an Appropriate Form of Business Ownership

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Choosing an Appropriate Form of Business Ownership!

In a way, selecting one best form of business ownership is like looking for a shirt that may fit even/body in the family. The best form of ownership is one which helps an entrepreneur attain the business objectives decided upon by him/her.

While selecting the best form of business ownership, the entrepreneur should keep the following considerations in his/ her mind:

1. Nature of Business:

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The selection of an appropriate form of business ownership depends upon, to a great extent, the nature of the proposed business itself. For example, the businesses that require personal attention and skill for their success are usually organised as proprietary concerns. Business requiring pooling of funds and skills are generally rim as partnership firms. For business involved in large scale production, the company form of business ownership is preferred.

2. Area of Operations:

The area of operation has also an important bearing on the selection of the form of business ownership. If the operation of a business is confined to an area or locality only, the appropriate form of ownership will be proprietorship. On the contrary, in case the area of operation is widespread catering to national and international markets, the suitable form of business ownership may be company.

3. Degree of Control:

In case, direct control over business operations is required, the suitable form of ownership may be proprietorship or partnership. In case direct control over business operations is not needed, the best form of business ownership will be a company.

4. Capital Requirements:

The capital required in the business also determines the selection of business ownership. If business requires a small amount of capital, the best form of ownership may be either proprietorship or partnership. In case of huge capital requirements, the company form of ownership will be the best.

5. Extent of Risk and Liability:

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Business involves risk. If an entrepreneur is ready and capable to bear risk involved in business, he can organise his business on proprietorship or partnership. But if the entrepreneur is hesitant to bear the risk involved in business, he/she can go for a company where individual risk is limited.

6. Duration of Business:

If business is proposed for a definite duration and on ad hoc basis, proprietorship or partnership are better forms of business ownership. The reason is that they are easy to form and dissolve. In case, the business is to be run on permanent basis, it can be organized as company or a cooperative because it enjoys perpetual succession.

7. Government Regulations:

If an entrepreneur does not like much government involvement in his/her business, he can select proprietorship or partnership as the form of his business ownership instead of a company or co­operative where the government rules and regulations apply more.